Business sales and NDAs: Creating a safe space to open up your business

Sharing information in a business sale

You have accepted an offer to sell your business, but taking an agreement in principle through to completion may involve the need to divulge your company’s private information – perhaps deep secrets which have given your business its competitive edge.  Could that information be used to undermine your business if placed in the wrong hands?

You might choose to disclose very little, but that could spell the end of a potential sale: A buyer will want to avoid surprises, and being denied access to key information could raise doubts, even suspicion; and possibly deter their interest altogether.

Therein lies a dilemma. To keep the sale alive, you may need to hand over key information; but, you can’t unring a bell: once information is released, your control over that material can disappear.

If the business sale completes, no harm is done, as you will no longer have a commercial interest in keeping the information under wraps.

But what if the sale falls through? Until the formalities of the deal are complete, no one is bound, and there are many reasons why one party, or both, may decide to pursue different opportunities and walk away.  The distance between an agreement in principle and completion could be a matter of weeks, months or even more.  The longer that negotiations prevail, the longer your business will stand exposed.

In addition, a buyer may want you to make promises about the affairs of the company.  If those promises don’t align with what you know, giving up information could prove to be the difference between ensuring transparency, and unwarily assuming liability for misleading a buyer.

To keep the sale alive, and to avoid getting caught up in the risks of misrepresenting the situation, you will need to find a way to open up your business to your prospective buyer, cautiously.

How NDAs can help

One solution is to enter a Non-Disclosure Agreement (an “NDA”). An NDA requires a buyer to treat the information you provide as confidential, such that it must not be shared with any third parties or used for any other purpose than to progress the sale.   This won’t avoid the need to disclose but will give your business a safer place to land if the deal falls through.

In this context an NDA can include even more, for example an exclusivity provision to give the deal the best chance of success by keeping the parties focused solely on each other.  also, an NDA might stipulate deadlines by which the deal must either conclude, or fall away, to keep expectations properly managed.

How Clarkslegal can help

Clarkslegal will help you understand how an NDA can help you progress from an agreement in principle to a conclusion, as safely and efficiently as possible, and our experts can tailor an NDA to meet your given commercial objectives. Contact our corporate team today for specialist advice.